A STRUCTURAL REFORM FOR THE WASTE MANAGEMENT SYSTEM

«Italia Decide» Meeting

Turin, April 4th 2014

Vito Gamberale

Waste: volume and trend

Waste production in Italy (thousands of tons)

– Each year around 160 thousand tons of waste are produced in Italy, 20% of which are urban solid waste (USW), and 80% are special waste (SW).

– Following a contraction in the volume of waste in 2009 due to the economic crisis, the amount of produced waste now seems to have stabilised. Over the next upcoming years, a minor growth is expected based on a much desired increase of the Italian GDP (which is a recognised driver for waste production)

2

Source: ISPRA BCG data elaborated by F2i

122 130 140 141169 170 172 161 164 163 162

30 30 31 32 33 33 33 32 32 31 30

92 100 109 109136 137 139 129 132 132 132

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E

SUW SW

The Italian market

Comparison with major European countries

– Below is a comparison of key data* on waste production in the main European countries

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The Italian market

*Data refer to 2010, latest available data

Italy Germany France UK Spain

Total production (mill of tons) (1) 164 363 355 164 137

SUW production (mill of tons) (1) 32 36 29 32 23

Population (mill inhabitants) (2) 58.1 82.3 64.8 62.3 47

Total production per person/year (kg) 2,823 4,412 5,481 2,630 2,946

Total production per person/day (kg) 7.7 12.1 15.0 7.2 8.1

SUW production per person/year (kg) 551 441 452 505 499

SUW production per person/day (kg) 1.5 1.2 1.2 1.4 1.4

GDP (bil €) (2)1,548 2,565 1,872 1,896 1,195

GDP/total production (bil € /1 mill of tons) 9.4 7.1 5.3 11.6 8.7

GDP/SUW production (bil € /1 mill of tons) 48.4 70.7 63.9 60.2 51.5

(1) Eurostat data(2) Data by Index Mundi

Waste sorting– At the end of 2012, waste sorting in Italy accounted for an average of around 39.9% across the

national territory (an increase in comparison to an average of 37.7% in 2011)– The most progressive European countries, such as Germany and Austria, have achieved a waste

sorting rate of over 60% by the end of 2012– The significant differences that still characterise Italian regions account for the gap between Italy and

the most performant European countries:

4Source: ISPRA

Piedmont is the fourth Italian region for waste sorting, with a rate of around 53% at the end of 2012.

The Italian market

Was

te s

ortin

g (%

)

Target 2012

Target 2011

Target 2009

Fragmentation of the operators

Main operators on the Italian market

– The Italian waste market presents high levels of «pulverisation»: the nine main operators handle only 7% of the total volumes

– On the contrary, the European waste management market – particularly in France, Germany and UK – is made of large operators:

France: a consolidated market, with two major operators (Veolia and Sita Suez) controlling over 60% of the system

England: five major operators hold over 60% of the market share Germany: big country-level operators, such as Remondis and Biffa, launched international growth

strategies

The Italian market is now facing a transitional phase that should lead major operators to extend their scope of action to a national – and potentially international – level, based on the examples of other European countries.

Main European operators

Source: corporate budgets. Analysis by The Boston Consulting Group

Mill tons of managed waste

Media escluso perimetro F2i: € 113 ton

98

115126

103

125

161

106,6

Rea Dalmine

Acegas Trieste

Acegas Padova

Hera Ferrara

Tecnoborgo Piacenza

PAI Parma TRM Torino

IAM (49% F2i) TRM (60% F2i in trasparenza)Including TRM S.p.A., acquired in December 201260

27

1813

Veolia Remondis Sita Suez Biffa

Mil tons of managed waste

Source: The Boston Consulting Group

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Biffa, the smallest among the big European operators, handles volumes comparable to those managed by the nine largest Italian players combined.

The Italian market

3.4

2.8

1.81.5

1.1

0.60.3 0.2 0.1

Hera A2A AMA Rome

Iren Veolia Acea APS Acegas

Waste Italia

ACSM

Sixteen Italian regions are dealing with unsuitable plants

Waste disposal in Italian regions

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Overview− Only a few regions (all in Northern Italy) have adequate infrastructures for the disposal of

waste produced in their respective areas

The deficit in plants and structures

Balanced plant situationInadequate plant situationSignificant unbalances

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− The market fragmentation, as well as the fundamentalist environmentalism that slowed (and is still slowing) down the sector’s development, prevented Italy to develop adequate plants for waste disposal (in particular waste to energy plants)

− The currently operating waste to energy plants are characterised by limited dimensions, if compared to those of the major European countries (especially France and Germany)

Currently operating WTE plants WTE plants average capacity

F2i analysis based on BCG and Eurostat data

Waste to energy plants in Italy

5270

130

Italia Germania Francia

5270

130

Italia Germania Francia

5270

130

Italia Germania Francia

100

429

154

Italia Germania Francia

(thousands of tons of disposed USW/year)(no of plants)

The deficit in plants and structures

5270

130

Italy Germany France Italy Germany France

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− The lack of WTE plants makes Italy the only country, out of all big European countries, to resort most to landfills for waste disposal (over 50% of its total solid urban waste production)...

SUW disposal techniques (2011 data)

− …which leads to constant environmental emergencies (Naples, Palermo, Rome, etc.).

Eurostat data

Waste disposal in landfills The deficit in plants and structures

49%

1%

28%

17%

37% 35%34%

62%

37%

Italy Germany France

Landfills Waste to energy Recycle and composting

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– A general lack of information (also) contributed significantly to Italy's current waste management landscape:

– The creation of WTE plants was opposed by utopian (and misleading) theories, which believed the whole waste production could be recycled through waste sorting. These theories were proven to be wrong by the fact that even countries that achieved the «zero landfill» target (eg. Germany) still resort to WTE disposal for a third of their waste volume.

– Fostering waste sorting is an important objective but it cannot provide for an overall resolution to the waste management problem. Landfills are the only alternative approach to WTE plants but they are potentially polluting (and will soon be made illegal in Europe). Another option is moving waste abroad, which is highly expensive.

To date Italy is still behind when it comes to shutting down existing landfills and sending waste abroad or outside the regional territory – consequently paying extremely high fines and rates.1 All this represents a (sometimes hidden) burden on end-users.

1 In 2007 the city of Naples paid 215 €/ton to send its waste to Germany – compared to a regular rate for waste disposal into WTE plants of 100 €/ton. Today Italy pays up to 170 €/ton to have its waste disposed outside its territory.

Improper burden on end users Negativerepercussions on the system

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– There are four ongoing European infringement procedures against Italy related to exceeding assignment of waste management, and illegal or unregulated landfills.

– Infringement procedure 2003/2077 – the most advanced one, currently pending at the European Court of Justice – addresses 218 landfills in 18 Italian regions that need restoring.

– Italy might be facing a fine of 61.5 million Euros plus a daily fine of 256,819 Euros for each day starting from the procedure sentence until restoration is completed.

– Other procedures are pending with the region of Campania, already sanctioned with a yearly claim of 10.25 million Euros, an amount that has now reached 34 million after 3 years.

– In addition, a currently ongoing specific procedure focuses on the waste cycle processing in the region of Lazio, with the landfill in Malagrotta (closed on last October 1st).

– Infringement procedure 2011/2215 related to 102 illegal landfills in 14 Italian regions is currently at the stage of reasoned opinion.

Violations to European regulations and possible sanctions for Italy

Negativerepercussions on the system

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– The development of the waste sector over the following 5/10 years should match the example showed by other big European countries.

– The Italian market is now facing a transitional phase, and following the pattern of Germany, France and the UK, the country should be expecting a new period of consolidation. This would bring the main operators now operating at a province/regional level, to aggregate and extend their scope of action at national and, potentially in the future, international level.

– The waste sector, however, also needs significant investments in order to increase the waste to energy capacity to match European levels. To be able to achieve the same results as Germany (i.e. disposal of one third of the produced SUW through WTE plants), Italy should establish an additional capacity of at least 7 thousand tons, which would need an investment of around 5-7 bil € (representing an investment of 700-1,000 €/ton).

– The current players on the market cannot provide for such resources, as they are too small and are controlled mainly by public shareholders that are now facing increasingly pressing financial issues.

The waste sector needs a centripental drive towards a market consolidation based on three «national champions», that may eventually be supported by private assets.

A necessary evolution

– In December 2012, F2i and Iren won the tender organised by the Turin municipality for TRM S.p.A., and then acquired 80% of the company shares on December 21st 2012.

– Despite a background of difficult creation of waste disposal infrastructures in Italy, thanks to the TRM transaction the acquisition of the fourth biggest plant in Italy could be achieved.

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The investment in TRM

WTE plants in Italy per managed volumes (kilotons)

F2i activities in the waste sector

TRMComune di Torino

75%€ 95 mln

25%€ 31 mln

20%

Veicolo TRM

80%€ 126 mln

Gruppo IrenF2i Ambiente SpA

Banca IMI -Unicredit

Finanziamento BtE aF2i Ambiente SpA

Turinmunicipality

TRMvehicle

Overall considerations Serviced area: Turin ATO

– The province of Turin has a total of 2.3 million inhabitants in 316 municipalities

– Waste sorting accounts for over 50%

– The disposal capacity needed for the urban solid waste of the Turin province alone accounts for 530,000 tons/year (2011 data)

– The area is divided in eight consortia

– To date, only the assignments of the plant for the Turin municipality and for the southern part of the province have been confirmed

– Considering the lack of plants in this territory, an expansion of the area serviced by TRM and other consortia is planned in the middle term

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TRM S.p.A. – Reference pool

Consortia that confer/should confer to TRM

F2i activities in the waste sector

– F2i partnership with Iren allows TRM to benefit both from Iren's industrial expertise in the environmental sector and from its control over the entire waste industry – considering Iren's concomitant acquisition of AMIAT, the company operating in the waste collection in Turin

– The Iren Group is the fourth Italian operator in the environmental sector: it handles activities in the field on a multi-regional basis and provides services for a pool of over 2.3 million inhabitants

– The Iren Group operates on the entire waste management industry with the collecting, sorting, treating and disposal of around 1.5 million tons of urban and special waste

– The Group manages 15 disposal plants, including Piacenza and Parma's WTE plants

– Controlling the waste collection sector has become an essential strategic element to ensure the plants' capacity saturation, especially in a time of decrease in produced waste and when considering the strong increase of waste sorting

Activities of Iren AmbienteIren Group's activities in the waste industry

Environment

Environment

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The partnership with Iren F2i activities in the waste sector

Collection /transportation Selection Treatment / Waste to energy Disposal

Collection /transportation Selection Recycling Composting Treatment WTE Landfill

UW

SW SW

The partnership with Iren (2)

– The partnership of F2i and Iren in the management of TRM is part of a broader cooperation plan in the waste disposal sector that involves TRM and Iren Ambiente

– F2i aims to contribute, in the middle term, to create a «national champion» that originates from traditional branches within the Iren Group, and that could operate in the various segments of the waste industry, ranging from more traditional activities (collection and final disposal) to more advanced services (treatment and recycling), which will play an increasingly strategic role also thanks to the growth of waste sorting

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Iren Group: current activities in the waste industry Iren Group: strategic expansion areas

F2i activities in the waste sector